One institutional constraint that workers face in the labour market is being required by their employers to work a fixed number of hours (e.g. 40 hours a week). Some workers may prefer to work fewer hours at the going wage rate. These workers are deemed tobe "overemployed".

Part (a).Please draw an income-leisure graph that describes this overemployment situation.

Part (b).As this worker is already overemployed at the existing wage rate, she is unlikely to willingly work additional hours at this wage rate. Please draw an additional income-leisure graph that illustrates the overtime premium that employers may offer workers to induce them to work additional hours.

Part (c).Describe the substitution effect and income effect that result from an employer offering an overtime premium. Hint: are the two effects large or small?